2 What is Free Trade?In free trade, companies are free to trade with companies in other countries.No restrictions or government intervention (e.g. tariffs and other import restrictions)People are not encouraged to buy products specifically in their home country.

3 Proponents of Free TradeHollywood studios, consumer electronics makers, and music studios (because they sell their products in many countries)The World Trade Organization (WTO), which helps to negotiate trade agreements between countries.

4 How Free Trade Prevents PovertyCountries will remove unproductive industries (countries that are more efficient in these areas can fill these roles)Expansion will be focused on more productive industries.The more productive an industry is, the more profitable it is, ergo companies can pay their workers higher wages.Fewer restrictions allow for more goods to be exported to other countriesLower tariffs also lead to higher profits

5 How Free Trade Causes PovertyRich countries will likely trade with other rich countries that can monitor and create higher quality productsThis widens the economic gap between richer and poorer countries.Promotes outsourcing due to a larger market and increased competition; small businesses that cannot outsource are unable to compete in a large market.Local business is forced to compete with foreign business

6 What is Fair Trade?In fair trade, the disadvantaged are paid more for products through:Minimum Prices- the price of goods will not fall below a set floorPremiums- buyers pay extra for fair trade productsCurrently, there is a larger fair trade market for coffee and bananas

7 How Fair Trade Prevents PovertyGives struggling nations the opportunity to:trade their goods for reasonable prices on a global scaleestablish a secure source of incomebecome economically self-sufficient in the future and improve their standard of livingprevent child laborImprove living conditions

8 How Fair Trade Causes PovertyFair Trade price regulation sends producers the wrong message, because practice goes against economic laws of supply and demandBy paying more than the product is normally worth, buyers encourage producers to make moreWhen prices increase, people buy less so the extra producers struggle

9 How Prevalent is Fair Trade?The worth of all fair trade products amounts to far less than even a single percent (0.005%) of the total globe’s economy.The world’s GDP (gross domestic product) in 2007 was approximately 54 trillion USDThe total worth of all fair trade certified products in 2007 was only 3.2 billion USD

11 Case Study: Free TradeLiving standards in many countries are not catching up to those in first world countries. There are a few who are catching up, and those are countries who are open to trade.There is a strong positive correlation between trade liberalization and poverty alleviation.Open trade may cause some countries to lose in the short run. To prevent them from failing, the WTO suggests that social safety nets are implemented.

12 Case Study: Kenyan FarmersFair trade led to:Good:diversification of cropsincreased tradegreater price satisfaction for producersbetter nutritional varietyeconomic and social prosperityBad:human capital (education of children)In conclusion, fair trade contributes to the wellbeing of farmers, but investment in labor could be improved.